A small business doesn’t always have the resources to employ a full-time expert to handle finances. And when a busy owner is faced with the day-to-day difficulties of running a company, the nitty-gritty act of bookkeeping could slide down the priority list.
That’s why it’s important to develop the financial wellness side of your business by creating habits and processes to help finances run themselves with as little daily intervention possible. Here are five ways of starting on the process.
1. Make cash flow a priority
Poor cash flow is a constant drain on any business. Take control by using standard bookkeeping software to keep track of income and expenses. You don’t need anything too complicated, but simply setting out your financial basics in a clear way will help you keep on top of them, and likely reveal some easy savings or optimizations you can make.
Plus, when you have an immediate financial overview available, you can make better decisions with informed knowledge of how they’ll affect your bottom line.
2. Efficient invoicing
Follow a reliable process for invoicing your clients. Receiving prompt payment can be difficult enough without inefficiencies and delays on your end. Set up clear payment terms for customers, either on the invoice itself or in a written agreement for ongoing relationships. Invoice promptly and accurately so there’s no space for disagreements and delays.
3. Managing accounts receivable
But don’t just issue your invoices and trust in the customer to pay on time. Use some basic accounts receivable software to manage what you’re owed so that unpaid invoices don’t slip through the system.
And don’t be afraid to take a hardheaded approach to the collection of overdue invoices. A client who frequently pays late risks being a liability rather than an asset, diverting energy away from the growth-producing parts of your business.
4. Plan for downturns
Even the most efficiently run business can suffer from downturns, whether through general trading conditions or exceptional events beyond any reasonable control. A healthy business will have plans in place to draw on funds if revenue and profits dry up, keeping the business afloat while a long-term solution is found.
It’s important to develop an emergency budget before you need the funds, so look into the following options while times are good:
- Explore qualifying for a low-cost operating line of credit you can access on an ad hoc basis.
- Apply for a dedicated business credit card for quick and easy access to funds when needed.
- Talk to your bank about an overdraft or another form of revolving credit, ideally with no standing fees unless you actually make use of it.
5. Monitor existing debt
As businesses grow, their credit and debt needs often change. For example, are you still using any high-cost credit facilities leftover from the early days of your business? Scheduling a regular credit and debt review with your business banking advisor can do a lot to set your finances on a smoother track. Developing these straightforward financial wellness habits will give your business a strong foundation to operate from while you get on with generating growth.